Housing stimulus details developed

The Government has insisted that only credit-worthy borrowers will be able to buy homes with its expanding housing stimulus programme as it revealed more details on the Help to Buy scheme.

PUBLISHED: 09:07, Tue, Jul 23, 2013

The first stage of Help to Buy was launched in April and offers loans to give people the chance to buy a new-build home with a deposit of 5 per cent [PA]

Chancellor George Osborne met major housebuilders and mortgage lenders to flesh out plans to underwrite £130 billion of mortgage lending with state guarantees - including banning second home buyers and people with property abroad.

The first stage of Help to Buy was launched in April and offers loans to give people the chance to buy a new-build home with a deposit of just 5%. The scheme has been credited with driving a surge in home sales and driving up prices. Mortgage guarantees will launch in January and will see the state take on the risk of default by borrowers by guaranteeing a proportion of a home loan. Extending Help to Buy aims to boost mortgage availability by reducing the risk for lenders, and will cover both existing and newly-built homes.

Guarantees will only be available to borrowers who can afford the mortgages, while those with impaired credit ratings will be excluded, the Treasury insisted. It will include income checks and stress testing. Guarantees will also not be available for second home purchases, and lenders will be required to collect a declaration stating that the borrower has no interest a property anywhere else in the world. It will not be able to be used in conjunction with another state scheme. Lenders will pay a fee to use the guarantee, based on loan-to-value banding.

Mr Osborne held a breakfast meeting at Number 11 Downing Street with executives from builders including Persimmon and Taylor Wimpey as well as major lenders such as Lloyds Banking Group and Barclays. The guarantee will be be available on homes worth up to £600,000. The state will offer guarantees totalling up to £12 billion on £130 billion of high loan-to-value mortgage lending. The initial equity loan stage allows people to buy a new-build home worth up to £600,000 with a Government loan of up to 20%, interest-free for five years. However, the guarantee plans have been widely criticised for risking inflating another housing bubble and piling huge housing risk on the Government.

Former Bank of England governor Lord King warned that the scheme is "too close for comfort" to a general scheme to guarantee mortgages, while the Bank's deputy governor, Paul Tucker, also warned that it would be "unwise" as a medium or long-term scheme, saying recently "This is not a market that needs a permanent subsidy. They (home loan guarantees) are devices for getting out of a hole to dig another one for the future."

Mr Osborne said: "I'm determined to back people who want to do their best for their families. Help to Buy is about getting behind those who aspire to own a home. The mortgage guarantee will support an increase in high loan-to-value mortgages for people who can't afford large deposits, and it will also boost housebuilding. As of today lenders have the detail they need to go away and get ready for next January's launch."

The Council of Mortgage Lenders said the guarantees must be easy to implement and have a "clear exit strategy". CML director general Paul Smee said: "Lenders, whether they choose to participate in the guarantee scheme or stay outside, will continue to do their utmost to meet households' needs for mortgages, but always in a way that is responsible."

Graeme Leach, chief economist at the Institute of Directors, said: "The housing market needs help to supply, not help to buy, and the extension of this scheme is very dangerous. Government guarantees will not increase the supply of homes, but they will drive up prices at a time when it seems likely that house prices are already over-valued. When the scheme is withdrawn, any rise in prices that has taken place will be undermined, with potentially disastrous results. There is a real risk that the housing market will become dependent on the underwriting by Government, making it very difficult politically to shut the scheme down. This should be of great concern. The world must have gone mad for us to now be discussing endless taxpayer guarantees for mortgages."

Labour housing spokesman Jack Dromey said: "Any help for first-time buyers struggling to get on the property ladder is to be welcomed. But there is now widespread criticism that this scheme will do little to bring the cost of housing within the reach of low and middle-income earners. Unless the Government finally acts to build more affordable homes, then home ownership for millions of first-time buyers will remain but a dream. If the £10 billion infrastructure boost recommended by the IMF was spent on housing, we could build 400,000 affordable homes and support 600,000 jobs. That's the way to get people back to work, sort out the housing crisis and strengthen our economy for the long term."

https://www.gov.uk/affordable-home-ownership-schemes/help-to-buy-equity-loans(Help to Buy)